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Taking your engineering consultancy to the next level
If you’re looking to expand or buy your own engineering firm and wondering how to finance it, there’s some good news for you.
There are lenders that offer balance sheet lending, whether you work in the design and management of infrastructure, environmental, commercial or residential projects.
Not all lenders are the same though and there can be huge differences in what finance discounts are available to you.
How do you get a commercial loan to buy your engineering consultancy?
Do you have management experience in an engineering or quantity surveyors consultancy?
Have you been running your business for a few years and now looking to release your residential property from the business loan?
Banks favour engineers over other types of professions so there are favourable terms available with an engineering consultancy commercial loan if you choose the right lender.
How much can I borrow?
- Borrow up to 70% of the business value or up to 100% with a residential property as security or a guarantor.
- Borrow up to 90% of the value of your residential property and pay no Lenders Mortgage Insurance (special exception for engineers).
- Freehold: Borrow up to 70% of the purchase price (standard commercial properties like offices and warehouses).
- Principal and interest: 5 years or up to 30 years with a residential property as security.
- Interest only: Up to 5 years.
- At least 3 years professional experience in a managerial role.
- Lease doc, low doc and no doc loans available with a larger deposit.
- Our mortgage brokers can negotiate strong commercial interest rates on your behalf.
Need an engineering consultancy commercial loan specialist?
Speak to us and find out if we can get you approved for a competitively-priced business loan that will support the growth plans of your quantity surveyors firm.
Call 1300 889 743 or complete our free assessment form to find out if you qualify.
What do banks assess?
p>There are a number of minimum performance indicators that the business is expected to meet in order to get approved for an engineering consultancy commercial loan.
These apply no matter whether you’re refinancing your existing loan or buying a new quantity surveyors company.
The following assessment indicators are intended as a guide only and requirements vary depending on the lender:
- Business turnover: Over $2 million per annum backed up with at least 3 years business financials.
- Management experience: Minimum 3 years in running or managing a firm. This is one the first things that the bank will consider because your track record is a key indicator of your future business viability.
- Professional indemnity insurance (PIS): This should be at a level that’s appropriate to the firm and/or partners.
- Net worth per partner: $500,000 per partner (includes any assets you hold with a spouse).
- Operating profit before tax: Around 10-20% of revenue.
- Debts/liabilities to assets: More than 50%.
- Maximum reliance on single debtor: Less than 30% of total revenue.
- Security: General security agreement (GSA) of the commercial premises.
- Keyman insurance: Essential if the business is relying on the skills and experience of one managing director.
What about interest cover?
Some lenders require that interest cover for the consultancy be more than 2.5.
What this number refers to is total income divided by total interest or how many times total income covers the interest on the commercial loan.
Lenders often prefer to use earnings before interest, tax, depreciation and amortisation (EBITDA) because it’s a better indication of total income.
To explain interest cover, the interest on a $2 million commercial loan would be around $130,000.
So for a consultancy firm turning over $1 million, the interest cover rate would be 7.69, which would be considered acceptable.
Do I need a business plan?
The bank will usually want to see a business plan with cash flow forecasting for the next 12 months.
Since you’re likely be coming into the business with an existing book of contracts, the cash flow forecast you provide will give the lender an indication of your work in progress (WIP).
The bank will be looking carefully at the systems in place to manage the business. For a moderately-sized engineering firm, this is a given.
Finally, your experience and expertise should complement the firm you’re looking to buy. This includes having your own capital to invest in the business.
After your application is approved, a bank will normally follow up with so-called covenant reporting to ensure that you’re continuing to hit the targets you set out in your business plan.
Some of the requisites listed above – not all of them – will also form part of this reporting depending on the risk appetite of the bank for the particular firm that you’re buying.
Ultimately, it’s all about building a profile of yourself as a financially-stable business owner and mortgage broker can help you do this!
What if I don't meet the bank's requirements?
Again, the performance indicators mentioned above are a guide only and only designed to give you some indication of how your financials and that of the firm will be assessed.
Ultimately, commercial loan applications aren’t assessed through a “tick the box” method like a residential home loan.
Commercial finance is a very grey area: as a broker, if we can see strength in one area, we can usually mitigate the areas that are weaker.
It all comes to building a strong business case so the bank has confidence in approving what’s described as a balance sheet lend, that is, the engineering consultancy commercial loan is approved purely on the strength of the firm.
If the bank isn’t satisfied with the strength of the balance sheet, then that they may require you to put a residential property you own as security to support the finance.
The great news is that by doing it this way, you can potentially borrow up to 100% of the business value!
What if I want to refinance my current business loan?
Many engineers or quantity surveyors who have been running their firm for a number of years may originally provided their own home as security for the loan.
If you’re looking to now release that property, get a cheap interest rate or you’re simply not happy with your current lender, we can help you make a switch that’s in your best interest.
How can we help?
You may be wondering why you simply wouldn’t stick with your current bank and apply for an engineering consultancy commercial loan.
The reason is that your bank will only offer you their own commercial loan products.
By using a specialist mortgage broker, we can build a strong application and “shop around” for with a number of different lenders and find one that can offer you the best deal for your situation.
The commercial arms of lenders are willing to negotiate heavily on interest rates and the LVRs (Loan to Value Ratio) they’re willing to lend to just to get your business!
Call us on 1300 889 743 or fill in our free assessment form to speak with one of our expert commercial brokers today.
Can I buy the freehold property as well?
Buying an existing firm with the freehold property attached (freehold going concern) may be a better option than simply buying the business (leasehold).
The reason is that there is an inherently higher risk is simply relying on the strength of the business to provide you with a steady return on investment.
At least if you buy the commercial property, whether it’s an office, warehouse or mixed use shop front, the land and the property may retain value.
If the consultancy hits a rough patch, you can always sell the premises to an investor in the knowledge that you’re planning to remain there on a long term lease and meet your rent.
Of course buying the freehold along with the business will require more expertise than an accountant can provide.
It often makes sense to enlist the help of professional valuer to ensure that you’re getting what you’re paying for.
As an engineer, you can organise for any repairs or renovation work that needs to be undertaken. The point is, you can negotiate these costs in the contract of sale with the vendor.
Are you simply looking for a space to run your engineering firm?
We can help you qualify for a standard commercial loan and know lenders that will allow you to borrow up to 70% of the purchase price or up to 100% if you have enough equity in any residential properties that you own.
Call us on 1300 889 743 or complete our free assessment form to find out how we can help you.
How do I look for goodwill?
Identifying and valuing the goodwill in an engineering business can be difficult so it’s best to consult with a specialist accountant, who will typically consider:
- Existing contracts and repeat business: Good firms often have a few hundred projects in progress in any given year.
- Reputation: News spreads quickly in the construction and building industry so you’ can pretty quickly identify red flags.
- Diversified client base: Consider engineering consultancies that operate in a number of sectors rather than simply commercial office buildings, for instance. The only exception is if the business has a unique service offering. You should expect to pay a goodwill premium for any such firms.
- Long-term and efficient support and administration staff that have good relationships with long-time clients.
- Clean, modern premises with adequate parking and in a good location.
- Ambient environment.
- Established relationships with professionals and tradesmen in the construction industry.
- Plant and specialist equipment that’s in good working order (ask for warranty).
Such engineering or quantity surveyor firms that may carry a goodwill premium are those that specialise in:
- Concrete scanning.
- Concrete coring.
- Service locating.
- Ground penetrating radar technology.
What are the features of a commercial loan?
The features available with an engineering consultancy commercial loan will vary depending on your Loan to Value Ratio (LVR) and whether you’re applying for a full doc or a low doc loan.
- Offset account: Typically not available.
- Line of credit (LOC): Available but higher interest rates apply.
- Redraw facility: Available for amounts that you’ve pre-paid.
- Additional repayments: Available on variable rate commercial loans.
Does it matter what sector I work in?
The engineering sector has had a solid run over the last few years and most lenders have a good appetite for consultancies in this space.
There are a number of government-funded and privately-funded development plans going ahead in a number of cities across Australia, most notably in Sydney.
Although economists do take this “macro” view when assessing the viability of particular markets, banks don’t necessarily have a changing appetite for firms operating in the commercial property space versus residential, for instance.
Rather, individual applications to buy an engineering consultancy will come down to its track record, your experience and what contracts are in the pipeline.
The consultancy needs to be resilient in any economic environment which is why the lender wants to see a track record of at least 3-5 years.
Can I get invoice discounting?
Yes, we can help you with invoice discounting!
Unpaid invoices are common with engineering consultancies and there are a few lenders that recognise this.
Our best lender can actually lend up to 90% of your outstanding invoices for a strong business.
Keep cash flowing through your business and avoid financial stress!
Complete our free assessment form if you need help with invoice discounting or invoice financing.
Speak to a legal and financial professional
Apart from seeking the help of a specialist commercial mortgage broker, you should also consider having the following professionals on your team when looking for consultancies to buy.
Be sure to seek out professionals that are qualified and actually specialise in buying engineering businesses or at the very least commercial properties.
- Accountant
- Business broker
- Financial adviser
- Lawyer and/or solicitor
By having these experts in your team you can avoid very common mistakes when buying a business, the least of which is actually ensuring for that you’re getting what you pay for in the Heads of Agreement (Contract of Sale).
This refers to buying the freehold property along with the business.
Having a null and void agreement in the contract might be something to consider in cases where you make it a condition of sale that certain repairs and renovations be undertaken by the vendors.
You’ll also want to be clear that the property does, in fact, come with fixtures and fittings that have been advertised.
From a business perspective, a specialist accountant can help you analyse the financials of the business and ensure that you’re not paying too much for goodwill, for instance.
Speak to a mortgage broker
We can help you qualify for an engineering consultancy commercial loan!
Please call us on 1300 889 743 or complete our free assessment form to speak with one of our experienced commercial mortgage brokers today.